EUR/USD retreats to 1.1685 as doubts about Iran’s peace process grow

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The (EUR) has snapped a four-day rally against the US Dollar on Friday. The pair pulled back from monthly highs at 1.1720 on Thursday to 1.1685 at the time of writing, as investors' confidence in a peace deal between the US and Iran shakes.

EUR/USD trims gains and dips to 1.1685, snapping a four-day rally.
Market concerns about the fragility of Iran's ceasefire are dampening risk appetite.
German consumer prices confirmed a sharp increase in inflation in March.

Tehran has been sending mixed messages about its participation in the peace talks scheduled for this weekend in Pakistan's capital amid alleged violations of the 10-point ceasefire deal by the US and Israel. The US has announced that a delegation led by US Vice President JD Vance will arrive in Islamabad soon.

The peace process, however, has been increasingly strained by Israel’s massive attacks on Lebanon, which have killed at least 300 people after the ceasefire agreement, and Iran’s poor management of the sea traffic in the Strait of Hormuz. Less athan 10% of the average traffic has crossed the waterway in the last 24 hours, as mines and bureaucracy keep a de facto blockade.

In Europe, German consumer prices data for March, released earlier on Friday, confirmed higher inflationary pressures stemming from Iran´s war and added pressure on the European Central Bank (ECB) to hike interest rates soon.

Later in the day, the focus will be on the US Consumer Price Index (CPI) data from March, which is also expected to have shown a significant acceleration, and might tip the scales on the Federal Reserve’s balanced monetary policy stance.

Technical Analysis: Euro is giving signs of exhaustion

EUR/USD maintains a bullish bias as it holds above a dense support area in the mid-1.16, but recent price action is giving signs consistent with a trend shift.

The pair shows a potential Double Top in the 1.1720 area, the 4-hour Relative Strength Index (RSI) reveals a bearish divergence, and the Moving Average Convergence Divergence (MACD) in the same timeframe is about to cross below the signal line.

Immediate support remains at Thursday's lows in the 1.1650 area, which is the neckline of the mentioned Double Top pattern and the previous highs between 1.1630 and 1.1640. Further down, the trendline resistance from late-March lows is now at 1.1575.

To the upside, a confirmation above session highs at 1.1723 would negate the bearish view and expose the February 26 and 27 highs near 1.1820.

(The technical analysis of this story was written with the help of an AI tool.)

Economic Indicator

Harmonized Index of Consumer Prices (YoY)

The Harmonized Index of Consumer Prices (HICP), released by the German statistics office Destatis on a monthly basis, is an index of inflation based on a statistical methodology that has been harmonized across all European Union (EU) member states to facilitate comparisons. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is bullish for the Euro (EUR), while a low reading is bearish.

Economic Indicator

Consumer Price Index (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve (Fed) has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

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